Imagine That IP Law Blog

2021 has seen many different trends, with a large one being break ups, specifically, major companies splitting into multiple entities. Earlier this year, several fortune 500 companies, including General Electric (GE) and Toshiba announced that they would be splitting into multiple entities. But how do intellectual property (IP) rights play into these major spin offs?

Splitting companies and determining where the IP rights will go requires careful consideration of a variety of factors. While it may be clear where some IP goes, such as specific patents or trademarks, other IP may not be so clear. When splitting, certain companies may only focus on one area, such as aeronautics, making it clear that the IP rights associated with aeronautics will be best served at that entity. In other instances, a trademark may be best suited to go to an entity that has the most “consumer facing” products in order to maintain the good will associated with the mark. How smoothly companies make the transition plays a large role in the overall success of the split.

There are some dangers to splitting that a company should consider prior to moving forward. One danger, is the lapse in deadlines, which can happen if the IP gets lost in the shuffle. For example, in the case of inventions, if a new product is sold that embodies the invention and the company subsequently splits prior to filing a patent application, it is possible that a year could pass, thus making it impossible to obtain patent rights. Another potential issue is trade secrets. Companies need to take careful consideration on how to protect trade secrets across multiple entities, especially when some of these companies do not share common leadership. It is especially important to take measures to maintain the secrecy of trade secrets, which can become unenforceable if revealed. This can be especially complicated across multiple entities. However, with proper communication and management, these pitfalls can be minimized.

There are multiple avenues to mitigate these potential problems. One way to manage these splits is through thoughtful license drafting to ensure that any IP being split is not only going to the correct entity, but that sharing certain IP is an available avenue. Additionally, major companies can set up a holding company to manage and license the IP so that there is no confusion. The holding company can also keep track of deadlines to alleviate any potential oversights caused by a split.

Overall, companies contemplating splitting into multiple entities need to take careful consideration on what IP rights should be going where and how to best split those rights to ensure that IP is not lost and each new entity is set up for success.